Measuring Performance as a Dependent Variable of Patent

12 Pages·2013·0.79 MB·English

Measuring Performance as a
Dependent Variable of
Patent Management
Maturity
R. Hilarius
July 15, 2013
Measuring Performance as a Dependent Variable of Patent Management
Maturity
R. Hilariusa
aUniversiteit Twente, Drienerlolaan 5, 7522 NB, Enschede, Netherlands
Abstract
In this article the effect of the Strategic Patent Management Maturity will be assessed by using the patent
h-index. The author will start by discussing the typology for assessing the strategic patent management
maturity. In detail the attributed function Liability will be discussed regarding the results from the case-
study and an alternative implementation is proposed. Next the similarities and differences of inventing and
innovating are discussed because these concepts are often applied incorrectly. While the correct use can
be of importance to make essential differences clear. To asses the Strategic Patent Management Maturity
using patents, different options are discussed regarding the quantity and quality of patents. The patent
h-index is chosen as the best indicator representing the inventive impact of an organizations patent portfolio.
Because of the strong influence of sectoral differences on the propensity to patent of an organization and
the representation of the patent portfolio as sample of inventive output, the use of propensity to patent
as intervening variable is discussed. The operationalization of the used indicators is discussed and the
determination of the h-index is worked out, using the biopharmaceutical and biotechnological companies
from van Reekum’s pilot and case study. We conclude by discussing the found results.
Keywords: Invention, Innovation, Patent Management Maturity, h-index, Patent, Propensity to Patent
1. introduction strategic patent management practice. In his book
Ackoff develops four categories based on the atti-
In this article I attempt to make a contribution
tudes towards planning. He develops them by look-
to the Strategic Patent Management typology de-
ing at the distinctive differences of their temporal
veloped by van Reekum. Following the results from
orientationandplanningposture,seetable1(Ackoff,
Kern and van Reekum (2012), i will suggest a dif-
1981, p. 52-65).
ferent and more general approach for the liability
attributeofpatents. Usingthistypologyasmystart- AlthoughKernandvanReekumdonotuseaform
ing point I will build a conceptual model and use of temporal orientation, they develop four planning
insights from the field of scientometrics to suggest attitudes for patent management based on Ackoff’s
an independent variable to measure performance planning attitudes. Each representing an increasing
differences between the four categories as developed level of activeness. Van Reekum however, does this
by van Reekum. regarding eight patent functions. In analogue to
Ackoff, van Reekum distinguishes the following four
2. A typology for assessing strategic patent planningattitudesforpatentmanagement: Inactive,
management maturity Reactive, ActiveandProactive. Theeightfunctions
are divided in two categories; the inherent functions
Based on Ackoff’s categories of strategic planning and the attributed functions. The inherent func-
attitudes (Ackoff, 1981), Kern and van Reekum de- tions are the functions of patents as intended by
veloped four attitudes that are applicable in the the designers of the patent system. The attributed
functions are the functions, other than the inherent
functions, assigned to patents by managers for cor-
Email address: [email protected](R.
Hilarius) porate purposes. The functions and its attributes
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Temporal Orientation Types of planning
Reactive Past Tactical
Inactive Present Operational
Preactive Future Strategic
Interactive (Proactive) All Normative
Table1: Ackoff’scategoriesofstrategicplanningattitudes
are summarized in table 2 and will not be discussed party valid intellectual property right (IPR) claims
in detail here. When looking at the four different against a particular commercial operation” (Sandal
attitudesandtheireightfunctionsonehastorealize andKumar,2011,p. 204). TodeterminetheFtO,a
that their borders are not absolute. What Ackoff prior art search has to be carried out. This may be
says about his planning orientations can also be doneforvariousreasons;determiningthepatentabil-
regarded in this case: “The four basic planning ori- ity of an invention, ground of patent invalidation
entations are like the primary colors; they seldom or possibility to proceed with the research, develop-
appear in their pure form. Most of the planning we ment and/or commercial production, marketing or
see, like colors, are mixtures; nevertheless, they are use of a new product or process. (Sandal and Ku-
usually dominated by one of the four pure types.” mar, 2011) The results of this FtO analysis should
(Ackoff, 1981, p. 53) make clear if there is a liability or an opportunity.
From the pilot study performed by Kern and van
The second concept used to elaborate on liability
Reekumtherelevanceofsevenoftheeightfunctions
isLiabilityofNewness(LoN).Generallythisconcept
were confirmed, leaving liability unconfirmed. In
is used as introduced by Stinchcombe (1965), to de-
their article Kern and van Reekum discuss this and
scribe a greater mortality risk of new organizations
note that the financial meaning of patent liability is
compared to established organizations. However
notapplicableintheNetherlandsbecausetheDutch
this concept can be applied to inventions instead
tax policy prohibits sale & lease-back constructions
of organizations, essentially describing aspects of
with patents (Hulsink and Schenk, 2002). However,
the liability function. The notion here is that an
patent liability in the sense of its legal meaning, the
invention carries inherent risks. It starts with the
consequence of infringement, is still of importance.
question if an invention has the potential to become
With the experience gained from the pilot and case
an innovation and if so, if it can be patented or
study the liability function is going to be developed
otherwise protected. Any technology that has been
in an alternative way.
developed to this point already needed a certain
amount of effort (time, money, R&D). This initial
2.1. Liability investment constitutes the inherent technological
risk of an invention. To further illustrate this, the
In van Reekum’s typology, liability is considered
concepts of incremental and radical innovation can
to be ambiguous, taking into account it’s financial
be considered. The framework these concepts are
as well as its legal meaning. In the Pilot study con-
part of consists of two dimensions where innovation
ducted the financial aspect of this function was not
can find place. It also assesses different, not always
confirmed. Presumably because the applied defi-
controllable, forces that influence the possible suc-
nition was not applicable in the Netherlands. We
cess of the innovation, or to put it differently, the
depart from van Reekums elaboration and take a
risks there are of an invention becoming an innova-
differentapproachtothisfunction. Thefoundations
tion.
for the new approach are the concepts of Freedom
to Operate (FtO) and Liability of Newness (LoN). Not included in the concepts of FtO and LoN is
Freedom to Operate is not new in the field of intel- a form of financial liability as used by van Reekum.
lectual property. It essentially denotes the (legal) With this third form of liability he includes the (in-
freedom one has before risking infringement. Or as ternational) practice of using patents as collateral
Sandal and Kumar put it: “FTO is essentially a to obtain a loan, placing a lien on the patent. The
legal concept, which connotes absence of any third reason that this liability was not confirmed in the
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Inherent functions
Incentive This function represents the patent as an input motivator to R&D efforts
Appropriation This function represents the patent as an mechanism providing functional exclusive-
ness to an invention
Protection Thisfunctionrepresentsthepatentasthelegalabilitytoexcludeothersfromgaining
returns on investments the proprietor made to create the invention.
Dissemination This is about the patent as a source of information open to rival companies (as a
consequence of being a publication), often inducing circumvention.
Attributed functions
Liability The financial meaning of patent liability is that of securing a loan.
Portfolio component Thepatentconsideredaspartofasetofmoreorlessrelatedproprietarytechnologies
that serve the corporate future.
Asset The patent as a financially valued means of producing gains to the owner.
Performance indicator The patent considered as an informational medium to represent the company’s
research performance and technology marketing potential.
Table2: Patentfunctions. KernandvanReekum(2012)
pilot study is because it is prohibited by Dutch pol- synonyms. It even went so far that innovation be-
icy. Internationally however this practice is reality came a buzzword, used by managers (and everyone
and thus it needs to be included. else) for everything that was even remotely new (to
Now that the liability function is explained in a them). In our discussion the difference between an
broaderscopetocoveralltheaspects,itisnecessary invention and innovation is however very important.
to operationalize this to the four attitudes of the As starting point we use the definition used by
typology, see table 3. Tidd et al. (2005). Tidd describes that inventing is
only the beginning in the innovation process, there
are enough good ideas available but only a few of
3. Invention or innovation?
them become true innovations. The step from in-
Withtheadjustmentsdonetothestrategicpatent vention to innovation is by no means automatic,
management attributes by reevaluating the Liabil- as already discussed by Maclaurin (1953). For ex-
ity function we now have a complete framework ample: Often researchers are great inventors but,
to use as an independent variable for evaluating a more often than not, poor innovators. Or to use
firm’s attitude regarding patent management. To an example from Tidd: “Edison appreciated bet-
domorethanmerelycategorizefirms,itisnecessary ter than most that the real challenge in innovation
to develop a dependent variable. Although scholars was not invention –coming up with good ideas –but
have written a lot about a firms performance, in making them work technically and commercially.”
most cases financial performance, there is not much (Tidd et al., 2005, p. 65). Regarding innovation,
written about the performance of a firms Intellec- R&D and marketing are two sides of the same coin.
tual Property Management (IPM). There is no such In addition it is worth mentioning that the size of
thing as a generally accepted way to measure the ef- the invention (the technological leap forward) is not
fectiveness of a firms IPM. Therefore it is necessary necessarily proportional to the size of the innova-
to develop our own performance variable. tion. An incremental improvement of a product
We start by making clear what we mean when may become a big innovation and a revolutionary
talkingaboutinventionsandinnovations. Whendis- new product may never sell a single unit. Inventing
cussing patent management and performance, often and innovating both can be done in incremental to
the terms invention and innovation are concerned. radical proportions.
In practice the difference between inventing and in- Next there is the relationship between inventing,
novating is often unclear and the words are used as innovating and patenting. Based on the discussion
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Inactive Reactive Active Pro-active
FtO: When infringement is An FtO is conducted A FtO search is done. A FtO search is done.
claimed the activities after infringement is When (possible) in- When (possible) in-
are stopped and/or claimed to prevent fu- fringement is found fringement is found,
the litigation is re- ture litigation. theproblemiscircum- circumvention is an
solved by settlement. vented or the project option as well as ac-
canceled. quiring a license or
patent.
LoN: R&D in new prod- R&D for new prod- Alternatives assessed Initial (R&D) costs
ucts is avoided. The ucts is started when before investing are seen as invest-
organizations efforts technologicalrivalryis ments, not as costs.
are aimed at improv- assessed on the basis The (strategic) devel-
ing and evolving the of patent info opment of new prod-
proven products. ucts is done according
the product life-cycle.
Financial: Does not use a patent The patent(portfolio) On request of a fi- The organization uses
as collateral to obtain is valuated, but is not nancier a patent is a patent to obtain a
a loan. used as collateral used to obtain a loan. loan. (exclusively)
(exclusively)
Table3: Liabilityinthetypology
Figure1: Ageneralizedpictureoftherelationshipbetweenpatenting,inventionandinnovation. Thesizesofthedifferentparts
ofthefigureareofcoursearbitrarychosenandmayvaryacrosssectorsandintime. (Basberg,1987)
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of this subject by Maclaurin (1953), Basberg (1987) In essence patents are an intermediate product re-
representsthisgraphicallyascanbeseeninfigure1. sulting from inventive activities. This makes them
Patented inventions and innovations only make up inherently more suitable to asses these inventive
a small part of all inventions and patented innova- activities than innovation. The process in which
tions an even smaller part. Besides the relationship an invention becomes an innovation depends on far
between inventions, innovations and patents, figure more than a firms IPM, which does govern the con-
1triestomakeclearthattheuseofpatentstatistics ditions regarding inventing and patent awareness.
rests on the assumption that they are somehow re- As our starting point we are going to look at the
flecting inventive and innovative activity (Basberg, article from Hagedoorn and Cloodt (2003). In this
1987). article, Hagedoorn and Cloodt discuss several in-
dicators used to measure innovative performance
and what the added value is in using more than one
4. Quantity and Quality indicator. Interesting for us is that in relation to in-
novative performance they also discuss the concept
Now we have clarified the distinction between in- of inventive performance. In their article they state
ventions and innovations we are going to continue the following: “We define inventive performance as
withpatentsandperformance. Formanyyearsschol- the achievements of companies in terms of ideas,
ars analyzed patent data in an attempt to make sketches, modelsofnewdevices, products, processes
predictions based on it, or otherwise learn and draw and systems. As discussed below, inventive per-
conclusions from it. Patent law and thus patents formance is frequently measured in the context of
came into existence with the purpose to give an patentswherebothrawcountsofpatentsandpatent
inventor an exclusive right to commercialize its in- citations are taken as the actual measures.” (Hage-
ventionduringalimitedtime. Thisisofimportance doorn and Cloodt, 2003, p.1366). Further on they
because it stimulates to invest in the development additionally state: “Innovative performance in the
of new ideas. The thought being that if everyone narrowsensereferstoresultsforcompaniesinterms
could simply copy a successful idea, no one would ofthedegreetowhichtheyactuallyintroduceinven-
want to invest in development any more. This basic tion into the market, i.e. their rate of introduction
principle makes clear why patents are an intermedi- of new products, new process systems or new de-
ate product of inventions with potential. Because vices.” (HagedoornandCloodt,2003,p.1367). This
of this it is plausible to assume patents contains corresponds with the distinction we made above
information from the creative processes going on between invention and innovation. Farther in their
in firms, organizations or persons. However a re- articleHagedoornandCloodtdiscussthedifferences
lationship between patents and a firm’s (financial) and overlap between inventive and innovative per-
performance is not as obvious as one may think. In formanceandtheyconcludewiththediscussionand
his article, Holger Ernst states the following: “On testingofsingleversusmultipleindicatorsregarding
the firm level in particular, the question of whether innovative performance.
there is a correlation between patents and financial Theuseofpatentcountsasanindicatorforinven-
performance remains unresolved” He adds: “Some tiveorinnovativeperformanceisstillthetopicofan
empirical studies — recent ones, in particular — es- extensive discussion. However even critical authors
tablish a positive correlation between a firms patent admitthatpatentcountscanbeanappropriateindi-
situation and its competitive position,” Finally in cator (Hagedoorn and Cloodt, 2003). The problem
his conclusion he states: “From a theoretical point with counting individual patents is that, especially
of view with regard to further empirical patent re- when the patent portfolios are larger, tend to con-
search, we were able to show in addition to the tain a lot of similar patents protecting the same
findings of previous cross-section analyses a pos- invention in different countries. With this in regard,
itive correlation between patent applications and counting individual patents may still be valid when
subsequent changes in economic performance vari- considering innovative performance or evaluating
ables on the firm level” (Holger, 2001). From this the perceived value of an invention. In essence the
we can conclude that patents may not be directly problem is that alone, the quantity of patents is not
correlatedtoafirmsfinancialperformance,butthey agreatindicatorforperformance. However,because
do seem to be able to comprise some kind of perfor- this information is readily available geographical as
mance. Soforwhatarepatentsasuitableindicator? well as historical it is being used cautiously for this
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Figure2: Schematiccurveofnumberofcitationsversuspapernumber,withpapersnumberedinorderofdecreasingcitations.
Theintersectionofthe45◦ linewiththecurvegivesh. Thetotalnumberofcitationsistheareaunderthecurve. Hirsch(2005)
purpose. And: “Second,becausepriorinventionssetthestage
One of the problems when using patents to asses for new inventions, citations are used to measure a
performance is that the quantity of patents is only potentially important economic externality, i.e., the
relevantinregardtotheirquality. Theproblemwith impact the knowledge embodied in prior inventions
poor patents is that they do not offer the intended has in stimulation new contributions.” (Harhoff
protection, they are easily circumvented or do not et al., 1999, p. 511). Although Harhoff et al. (1999)
hold up in court. Because of this, the patent is continue to research the causality between citation
worthless and it only costs money. To control for frequency and the value of patented inventions, it
this, the quality of a patent needs to be included in is reasonable to assume that if patents are more
the evaluation of a patent portfolio. frequently cited the inventions are more important.
Another principle of patents is the idea of Quid The field that analysis publications is called bib-
pro quo, meaning that you do not get anything for liometrics and when it is specifically concerning
nothing. The idea behind this is that although an scientific literature, it is called scientometrics. One
inventorgetsanexclusiverighttocommercializehis ofthesubjectstheyareengagedinistheanalysisof
invention, the invention does get published. As a scientificpublicationstoassestheproductivity,qual-
result, anyone can see the invention, but they are ity and impact of publications and scholars. The
prohibited to exploit it commercially. They can analysis of patents and citations is quite analogue
however build upon or circumvent it. This results to this and that is why we looked for some insights
in that pivotal patents are used as a starting point and indicators in this field. One interesting index
for other inventions that may lead to a patent. In that measures the productivity and impact from
thearticleofHarhoffetal.(1999)theyusecitations scholars is the Hirsch-index (h-index). The h-index
as a measuring instrument in an attempt to learn isproposedbyHirsch(2005)asaparticularlysimple
something about the value of patented inventions. and useful way to characterize the scientific output
Dependingonnationalpractice,citationsareplaced of a researcher. The h-index is defined as followed:
in the patent text to show how it is different from A scientist has index h if h of his or her N papers
p
thepriorart. Harhoffetal.(1999)alstate: “Forone, haveatleasthcitationseachandtheother(N −h)
p
it is reasonable to suppose that the prior inventions papers have ≤h citations each. This can be graph-
citedinnewpatentstendtobetherelativelyimpor- ically represented as can be seen in figure 2. The
tantprecursorsthatbestdefinethestateoftheart.” strengthofheh-indexisthatitcombinesaquantity
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and a quality indicator into a single comparable the assumption is made that patents are a represen-
value. Hirsch developed the h-index to character- tative sample of the inventive output. The question
ize scientific output of researches however it can arises if this assumption can be made and can be
also be used to analyze the impact of an organiza- generalized to other organizations. Unfortunately,
tions patent portfolio as been showed by Guan and most likely this is not the case. When we look to
Gao (2009) in his article; Exploring the h-index at the literature regarding the use of patent statistics,
patent level. In the article Guan applies the h-index different variables are discussed that could cause a
to patents where the patent h-index is defined as bias. These variables will have, direct or indirect,
follows: For a general group of patents h is such an influence on the Propensity to Patent (P2P) of
that h patents received at least h citations from an organization. In essence this means that the size
later patents, while other patents received no more and composition of the patent portfolio will vary
than h citations. Only patent to patent citations between organizations. figure 4.
are counted, non-patent references (NPR) are not Propensitytopatentisnotanewconcept,Scherer
regarded. This is because a citation from another (1965) already used it to describe the limitations
patent can be seen as a ”vote” from the referenc- of counting patents for an inventive index. Scherer
ing patent to the referred patent, as such NPR can (1965) measured P2P by looking to the differences
be seen as votes for oneself. Guan compares the in patent output per unit of engineering input. A
patent h-index to other technological indicators and multitude of researchers use different definitions,
concludes the following: “this confirms that on one applications and measurement methods. As might
hand, similar to citation counts, the patent h-index be expected it is difficult to compare the inventive
does reflect the importance or impact of patents; on impact of a mining company and a pharmaceutical
the other hand, unlike citation counts, the patent company, largely because of the differences in the
h-index balances the quantity (number of patents) industry sector. We are going to use P2P as a
andthequality(citations)ofpatentsforanassignee construct that consists of uncontrollable external
inareasonableway. Insummary,theabovefindings forces that influences the quantity and quality of
show that the patent h-index is indeed an effective the patents, most notably industry sector and firm
indicator for evaluating the technological impact or size
quality of an entity.”. The patent h-index thus is a The best way to evaluate the PMM s is to use
suitableperformanceindicatortoassestheinventive a homogeneous sample; firms in the same industry
impact of an organizations patent portfolio. and of approximately the same size. However this is
not always possible or desirable for the researcher.
When a heterogeneous sample cannot be avoided,
5. Propensity to Patent
P2P can be used as a intervening variable to correct
For a performance indicator to have any meaning for the differences.
it is necessary that it is compared to the perfor-
mance indicator of other organizations. This way
6. Conceptual model
we can attempt to analyse the characteristics that
lead to the difference in performance. The frame-
With the introduction of P2P we can now con-
workcreatedinthisarticlewiththepatentmaturity
struct the complete model. In figure 5 there is an
typologyasindependentvariableandpatenth-index
schematic overview of the conceptual model. The
as dependent variable works in the same way. A
PMM is the independent variable with four modes,
higher score on the patent h-index is expected for
ranked ordinal. It has a direct positive effect on
more mature and active organizations (figure 3).
the inventive impact which is measured using the
When comparing the PMM and patent h-index of
patent h-index. If necessary the P2P can be used as
organizations, we hope to explain the differences
interveningvariable, positivelyinfluencingtheeffect
in their patent h-index score by the differences in
of PMM on the inventive index.
their PMM. The connecting element between these
variablesarethepatents. WithahigherPMMscore
we expect the patent output to rise in quantity and 7. Operationalization
quality, leading to a higher patent h-index. In this
case the patents are regarded as a sample of the in- Withthemodelnowcompletewecanoperational-
ventiveoutputoftheorganization. Whendoingthis ize it so the necessary data can be collected. First
8
Figure3: Apossiblecourseofthepatenth-indexrelatedtothepatentmanagementmaturity
Influence of
Inventions
Propensity to Patent
on sample size and
distribution
Innovations
Patents
Patented inventions
not in use
Inventions
Patented inventions in use
in use Inventions
not in use
Figure4: TheinfluenceofP2Ponthesample
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Figure5: Conceptueelmodel.
thePMMneedstobeestablished. Thiswillbedone h-index score, rounded down to the lowest integer.
by using a questionnaire, as has been done by Kern An example of such a plot can be seen in figure 6.
and van Reekum (2012). Using the Derwent Innovation index we deter-
Secondlyitneedstobeestablishedifwearework- mined the h-index of the 19 biotechnological and
ing with a homogeneous or heterogeneous sample. biopharmaceuticalorganizationsthatwherethesub-
Whenitisthelatteritwillbenecessarytoestablish jectofthepilotandcasestudyofvanReekum(1999).
the P2P rates of the sample organizations and their In table 4 the patent h-index is shown accompanied
industry sectors. Because of the sector wide infor- by the total number of patents and citations.
mation needed it is unpractical to do a own survey
for this, however existing surveys exist that report
some results regarding the P2P. Good examples are 8. Discussion
the research of Arundel and Kabla (1998) using the
MERIT/SESSI data and the research of Brouwer Continuing with the information from the Der-
and Kleinknecht (1999) using the CIS micro data. went Innovation Index, we put it besides the Patent
Atlastthepatenth-indexneedstobedetermined. Management Maturity scores found in the pilot and
This can be done by using the Derwent Innovation case study of van Reekum (1999). We looked if
Index as has been done by Guan and Gao (2009). there was any correlation between the h-index and
We will elaborate on the gathering of this data. the PMM, unfortunately no correlation was found.
Although this is unfortunate, it was more or less
expected. The time lag between the determination
7.1. Derwent Innovation Index
of the PMM and patent h-index score is almost 14
The Derwent Innovation Index is accessible as an years and although most literature regarding patent
on-line database through web of knowledge from statisticspleadtotakeaccountforoneHolger(2001),
Thomson Reuters. It covers 40 worldwide patent it is safe to say that 14 years is to long. During
issuing authorities covering over 14.3 million inven- these 14 years the management practice of these
tions dating back to 1963. Using the Derwent Inno- organization most like also changed, meaning that
vation Index and the instructions from Guan and the current state of their patent portfolio and thus
Gao (2009) it is simple to determine the patent h- patent h-index is a reflection of the management of
index of an assignee. All the patents of an assignee morerecentyears. Anotherindicatorforthisisthat
during a given time span can be retrieved up to most of the patents are granted in last five years.
the date of accessing the database. These patents However, there is something to learn from these
can be sorted according to the number of citations results. We can consider it as a test case where we
they have, making it possible to find the patent h- haveshownthatthepatenth-indexcanbeusedasa
index of the portfolio. Alternatively this list can be indicatorforsmall-mediumenterprisesandthatitis
plotted together with a 45◦ line (y =x) in a graph. not only applicable to large multinationals as Guan
The intersection between the two marks the patent and Gao (2009) showed. From the results in table
10